Bernanke Killed The World Economy, New Academic Study Confirms

This column has contended for several years, based on empirical data observations from several countries, that low interest rates worldwide were killing productivity growth. A University of Chicago paper finally provides some academic back-up for this contention and suggests a mechanism through which it takes place. There are other mechanisms also, and I would suggest that the Ben Bernanke-inspired wild monetary experimentation from 2008 on has done more damage to the world economy than any other initiative in the history of mankind.

The paper,“Low interest rates, market power and productivity growth” by Ernest Liu, Atif Mian and Amir Sufi, examines the behavior of firms in a competitive marketplace as interests decline, and demonstrates that, although lower interest rates at first increase competitiveness through increased investment, they also increase the comparative advantage of large firms, thus after a time discouraging the smaller firms from investing and making the market less competitive. If low interest rates persist and approach zero, eventually even the larger firms stop investing, because they are no longer subject to significant competition and thus do not need to invest.

The paper provides theoretical backing to and a possible mechanism for the observation set out in this column on several occasions in the last few years: that ultra-low interest rates in Japan, the Eurozone, Britain and the United States were closely correlated with unprecedented declines in the rate of productivity growth in those countries. In all the high-income industrial countries where interest rates were held artificially low after 2008, productivity growth by 2016 had effectively disappeared altogether, or close to it. The worst effects were seen in the eurozone and in Britain, where inflation continued, making real interest rates sharply negative. Even in Japan, where interest rates have been held artificially low for two decades, the productivity dearth worsened substantially after 2009.

Only after President Donald Trump was inaugurated in the United States did U.S. productivity growth begin recovering towards its healthy historical levels. Undoubtedly part of this recovery was due to the Trump administration’s de-regulation policies – just ceasing to pile regulation upon regulation appears to have had some positive effect, especially in industries sensitive to environmental-regulatory harassment. However, the positive productivity signs became clearer during 2018, as interest rates climbed towards the U.S. inflation rate, albeit still below their healthy historic levels.

It has also been noted in the United States that small business formation, a key driver of productivity growth, in 2010-2016 ran about a third below its historic levels, and half the levels of the late 1970s, when figures were first compiled, even though the economy itself had moved towards recovery. This aligns with the theory postulated in the University of Chicago paper, that small businesses become discouraged by very low interest rates, and simply cease investing, or even cease being formed.

From Austrian economic principles, there is a clear explanation for the decline in productivity growth in low-interest-rate environments. Economies work best when interest rates are at or close to their natural level, that would be set in a free market. In a Gold Standard system with free banking, interest rates naturally stay close to that level. However, if as in modern economies governments have taken over the money creation and interest-rate-setting functions from the market and move rates a substantial distance from their natural level, then investment decisions become distorted and suboptimal. In such a situation, productivity growth will naturally decline; if the distortion of the interest rate curve is prolonged, productivity growth may even disappear as investments are made into entirely the wrong assets.

This is what happened worldwide after 2008 (arguably, in Japan from 1998 with a short remission in the mid-2000s). As the University of Chicago paper points out, ultra-low interest rates discouraged small businesses (that effect appears to have been especially strong in Japan, where almost no major new companies have emerged since 1990). However, there are other sources of distortion.

In the United States, vast sums have been poured by companies into buying back their stock, because the earnings cost of doing so is small at low interest rates and companies believe that if their cash flow is solid, they can survive ad infinitum without significant equity capital. They are wrong, but only the next recession will teach them so, at great cost to their employees and the U.S. economy as a whole (doubtless their foolish and greedy top management will emerge with substantial payoffs, as usual).

In London, San Francisco, New York and elsewhere, the prices of high-end real estate have soared without limit. Low interest rates reward those with borrowing capacity, and for more than 20 years now, it has been profitable for the rich to borrow gigantic amounts of money at low interest rates and invest it in high-end real estate. This bubble is now in the process of bursting, much to the benefit of Millennials, for whom the price of modest real estate has been over-elevated by the shenanigans at the high end.

Debt of all kinds has proliferated, whether in auto loans at the consumer end (less so in home mortgage loans since 2008) or in corporate leveraged loans used by the innumerable buyout artists at the high end. Default rates on all these debts are beginning to rise; they will cause massive losses before we are much older.

In Britain, Switzerland and the EU, interest rates have sunk so low that even investments without any profit at all have been attractive, provided money can be borrowed against them. I have written in the past about the possibility of a flood of Babylonian ziggurats in the major financial centers – technically religious buildings, thus exempt from local property taxes, but serving a religion with no current believers, thus making them a pure speculative asset suitable for the ultra-Keynesian New Age.

Not content with the damage they have already done, some extreme aficionados of low interest rates are devising schemes to drive them even lower, confiscating ordinary people’s cash holdings so that there was no longer any alternative to their diabolical financial schemes. Truly Ben Bernanke’s inspiration of 2002 to drop money from helicopters, uttered at a meeting of the National Economists Club at which I was present, has been among the most economically damaging ideas in all of history.

One competitor for that prize, I suppose, is Karl Marx’s Communism, so banally celebrated by the functionaries of the of the EU at last year’s bicentenary. However, that great fallacy never affected more than about a quarter of the world’s population, and eventually exploded under its own weight. Bernanke’s folly, on the other hand, shows no sign of correcting itself. Although a few more years of U.S. success with President Trump and higher rates might do the job of correcting it worldwide, our chances of getting this necessary combination are currently less than 50-50, I would say.

Another such competitor for Worst Idea was the invention of agriculture. Yes, it enabled the planet to support more people, but at what a cost! Instead of devoting only a modest portion of their time to finding and killing woolly mammoths, humanity was now forced to devote itself night and day to back-breaking manual labor in the fields. In the short term, this was truly an unspeakably bad trade-off. In the long term, of course, it led to civilization and industrialization, but it took several thousand miserable years to do so. We can however be sure that Bernanke’s brainwave will lead to no such economic breakthrough, however many millennia we wait.

Perhaps the most likely competitor to Bernanke’s contribution as a destroyer of economic value is Maynard Keynes’ “General Theory.” It unmoored us from the established truths such as the Gold Standard and balanced budgets and enabled greedy and unscrupulous politicians to waste ever more of our money in the name of “stimulus.” The California High Speed Rail scheme was just one $ 77 billion example of such folly; to misquote Oscar Wilde, a man would need a heart of stone not to laugh at its demise this week.

We do not yet know whether negative real interest rates or trillion-dollar budget deficits will be more ultimately destructive of our civilization, and Keynes, not Bernanke, is responsible for the latter. Unlike Marxism and like Bernankeism, Keynesianism has affected the entire planet; indeed, it seems irrefutable, the fallacy that will not die. However, Keynesianism’s effect on productivity is indirect; it merely grows government, a low-productivity activity, rather than destroying productivity directly. If I had to bet, therefore, I would bet that Bernanke, even more than Keynes, Marx or the inventor of agriculture, will be the chief destroyer of economic value in our long-term future.

By promoting ever-lower interest rates, set completely artificially by meddling bureaucrats, Bernankeism’s proponents have gone far to killing the engine of prosperity that is capitalism itself. Contrary to Keynes’ belief, the level of interest rates is the central variable in a well-functioning capitalist system. By meddling with it, politicians and bureaucrats are attempting to act as Gosplan, the central planning agency of the Soviet Union. It doesn’t work, and the attempt to meddle in this way is morally wrong as was Communism.

It is good to have some respectable academic backing for this column’s battle against the monetary folly of Bernankeism. The struggle continues!

If you like small government……

Political correctness is….

You have the right to protect your health & home. Whether it’s unsafe technology, mandatory vaccines, or other unwanted interventions, InPower can help you reclaim your authority with the use of our commercial administrative process that anyone can use:

If you think it’s a good idea to……

The Kuhner Report – Podcasts:

Isn’t there a better way to vote?

by Witsnews

Voter fraud is on the rise, the same politicians keep getting elected over & over & over again….and we wonder why nothing ever gets done in Washington. One has to wonder how much of an influence voter fraud and the illegal vote has had on our current political state in this country.

Isn’t it time to change the way we vote, so that our votes actually count, instead of being effectively nullified by voter fraud?

Here are a few suggestions:

Every state should start requiring photo ID and proof of citizenship from every voter. (no-brainer)

Hand stamping procedures or similar tools for verifying one vote per person should be implemented in all states.

Early voting by mail, and absentee voting should be strictly limited to only those cases where legitimate need is proven. “Ballot harvesting”, a favorite among Democrats in California which allows anyone to collect absentee ballots unsupervised, should be outlawed.

Voting machines:

Any state using electronic voting machines should require that the machines provide multiple copy paper receipts showing a date/time stamp, voting location, machine ID number, and list all the candidate choices the voter selected.

One copy remains with the voter who initials all the receipts to verify that the information on the receipts is correct, and one copy goes to a representative of each political party.

After the electronic votes are all tabulated, staff from each political party represented in the election proceed to hand count each and every voter receipt while being monitored by reps from each of the parties. The totals from the hand counts are then compared to the results of the machine tabulations, and all results are immediately released to the public.

If the winners from the machine tabulations match those found from the hand counts from all political parties, then an official winner is declared.

If there is a discrepancy from the hand counts of any of the political parties large enough to show a different winner than what the electronic tabulations showed, then an equal number of staff from all parties represented must combine to do an additional final manual re-count.

The results of this final count determine the official winner. If the electronic tabulations are overruled by the results of the hand counts, all voting machines involved in the process are repaired or replaced immediately.

This is just a short list. There are many other options which should be considered such as increased use of security cameras, volunteer programs to provide proper oversight, legal aid for filing fraud reports, etc.

The future of the republic is at stake here, we have to get this right…and soon.

Socialism is….

When the Muslims Came….

Before:

and After:

When the Muslim refugees came, I didn’t protest….they were just poor refugees.

When they built mosques and Islamic cultural centers, I didn’t protest….they had the right to pray to Allah.

When they demanded only Halal food in schools, I didn’t protest….they can only eat what the Koran allows them to eat.

When they gang-raped women and girls, I didn’t protest…..rapes occur in every culture, and they have nothing to do with Islam.

When they carried out terror attacks, I didn’t protest….it was only a few extremists, who didn’t represent true Islam.

When they demanded Sharia Law zones, I didn’t protest….they needed their own space, and we live in a free country.

When they took their seats in government, I didn’t protest…..they have a right to be represented.

When they introduced Islamic Sharia Law, demanding that it apply to the entire population…….it was too late for me to protest.

The duty of a true Patriot….

Meet the U.S. Congress….

Feminists say….

Do you really want to know?

Worth The Short Read:

“America, The Last Man Standing”

JFK’s Words of Wisdom

Lutheran Minister Richard Wurmbrand On The Threat To Freedom

Russian Novelist And Historian Alexander Solzhenitsyn Cautioned The U.S.

Theodore Roosevelt’s Thoughts On Civilization, America, & The Future

It’s been over seven years. Do you realize that 300 tons of radioactive water from Fukushima is still being pumped into the Pacific Ocean every day? The ocean is dying. Why hasn’t there been more of an international effort to help Japan contain this disaster?

FARMLANDS – Documentary About The Plight Of South African Farmers – by Lauren Southern

Bill Cooper 9/11 Broadcast As It Happened – Maybe The Only Real Truth That Was Heard That Day:

Still believe that two aluminum planes took down three steel skyscrapers in perfect demolition-style free fall, and turned the buildings and their contents into dust…without the assistance of some other type of destructive force? – Where Did The Towers Go? – by Dr. Judy Wood – Hardcover

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In case you were wondering what your country might be like without 2nd Amendment rights, just look at history. Support the NRA – https://home.nra.org/

Slavery, Terrorism & Islam – by Dr. Peter Hammond – Paperback

Western Civilization is
under a full frontal
assault, and the leftists
are the ones holding
the door wide open to
their own demise!

Islam is not a religion,
nor is it a cult. Islam
has religious, legal,
political, economic and
military components.

Islamization occurs when
there are sufficient Muslims
in a country to agitate for
their so-called “religious rights”.

When politically correct and
culturally diverse societies
agree to “reasonable” Muslim
demands for their “religious
rights”, they also get
the other components under
the table.

Here’s how it works:

As long as the Muslim
population remains around 1%
of any given country, they
will be regarded as a
peace-loving minority and
not as a threat to anyone.
In fact, they may be
featured in articles and
films, and stereotyped for
their colorful uniqueness:

From 5% on, they exercise
an inordinate influence in
proportion to their percentage
of the population. They
will push for the introduction
of halal (clean by Islamic
standards) food, thereby
securing food preparation jobs
for Muslims. They will increase pressure on supermarket chains to feature it on their shelves…along with threats for failure to comply:

At this point, they will work
to get the ruling government
to allow them to rule
themselves under Sharia, the
Islamic Law. The ultimate
goal of Islam is to convert
the world, and to establish
Sharia law over the entire
Earth.

When Muslims reach 10%
of the population, they
will increase lawlessness
as a means of complaint
about their conditions. Any
non-Muslim action that
offends Islam will result
in uprisings and threats: